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Regulatory scrutiny of language discrimination in the marketing and offering of consumer financial products and services

Over the last several years, the Consumer Financial Protection Bureau (“CFPB”) and the Federal Trade Commission (“FTC”) have taken steps to expand the accessibility of their own programs and services for non-English speaking consumers. For example, in 2013, the CFPB launched its Spanish language website to provide access to essential consumer resources that include a summary of how to submit a consumer complaint and answers to consumers’ frequently asked questions.[1] Through its consumer helpline, the CFPB also provides assistance to callers in over 180 languages. More recently, in October 2014, the CFPB published a notice in the Federal Register of the agency’s Proposed Language Access Plan that would provide non-English speaking and limited English proficiency (collectively, “LEP”) consumers with translated consumer-facing documents and allow individuals to submit their consumer complaints in more than 180 languages.[2] Under the plan, consumers would also have the ability to receive written communications from the CFPB in Spanish.[3] As the Center for American Progress recently highlighted, “the proposed plan is a critical step toward ensuring that LEP people can exercise their right to fair and transparent consumer financial products and services.”[4] The FTC similarly works with consumers to prevent fraudulent, deceptive, and unfair business practices, and offers a full Spanish-language website for those who wish to file a complaint, review enforcement activities, or read consumer tips in Spanish.

While these recent agency activities are noteworthy developments in their own right, they also may be signaling a new consumer financial compliance front that has significant implications for the offering and provision of consumer financial products and services to our country’s ethnically diverse population. In an odd twist, these changes also have implications regarding the supervision, regulation, and oversight of such activities by a host of other federal and state regulatory authorities.

Certainly, the issue of language-based discrimination is not new. Federal consumer financial law requires that consumer financial services transactions be conducted in a manner understandable to the consumer.[5] It remains unclear, however, whether this means that financial services must be offered in a consumer’s native language, English, or both. Some states require consumer financial services be offered in English and another language;[6] and there are federal laws that require English language disclosures or translations for certain consumer financial transactions. In recent years, federal regulators have increased their scrutiny of consumer financial services and how such services are offered to LEP consumers.

In 2014, both the CFPB and the FTC held meetings to discuss the treatment of LEP populations by debt collectors. In particular, these meetings focused on how companies market and service their products and collect on outstanding debts in certain LEP communities. As the American population becomes more diverse and foreign language speaking populations grow, we expect that regulators will increase their scrutiny over how and what is offered to LEP consumers.

I. Federal Consumer Protection Laws Referencing LEP Consumers

Under federal law, there are at least three consumer protection laws implicated in the offering of consumer financial services to LEP consumers: (1) the Equal Credit Opportunity Act (“ECOA”); (2) the Electronic Funds Transfer Act (“EFTA”); and (3) the prohibition on unfair, deceptive, and abusive acts and practices (“UDAAPs”) in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”).

A. The Equal Credit Opportunity Act

The ECOA does not directly prohibit discrimination based on language; however, its broad mandate to “promote the availability of credit to all creditworthy applicants” may raise issues with credit offerings to LEP communities.[7] Pursuant to the Dodd-Frank Act, rulemaking, supervision, and enforcement authority over ECOA and its implementing regulation, Regulation B, was transferred to the CFPB.[8] The United States Department of Justice also has the authority to enforce the ECOA. The FTC’s historical jurisdiction, however, is now limited to entities not specifically covered by another regulator.[9] Pursuant to the ECOA and Regulation B, it is unlawful for any “creditor” to discriminate against consumers based on “race, color, religion, national origin, sex or marital status, or age.”[10] The ECOA defines the term creditor broadly to include anyone who directly or indirectly participates in the credit decision.[11]Violations of the regulation are generally proven by either a showing of overt discrimination (i.e., disparate treatment) or disparate impact (i.e., facially neutral treatment that results nonetheless in discrimination).

Regulation B specifically allows consumer disclosures to be made in languages other than English, provided the disclosures are also available in English upon request.[12] Thus, if a provider of financial services offers consumer disclosures in languages other than English, the provider should ensure that English language disclosures are also available. In addition, a provider must ensure that non-English language disclosures offer the same services as English language disclosures; otherwise, the provider risks committing a violation of ECOA’s disparate treatment prohibition.[13]

Notably, the CFPB has held financial institutions liable for violations of the ECOA based on offering Spanish speaking consumers different financial products or services than non-Spanish speaking customers. In one example, the CFPB found an institution in violation of the ECOA for charging higher interest rates and fees to Hispanic borrowers.[14] Another CFPB settlement alleged discrimination against consumers on the basis of national origin for excluding individuals with Puerto Rico mailing addresses and/or Spanish language indicators on their accounts from debt relief offers.[15] In that instance, the CFPB did not find that the institution violated the law based on the language distinction, but rather on the fact that a majority of Spanish speaking consumers lived in Puerto Rico or were of a different nationality than the English speaking consumers. Thus, if a financial institution offers consumer products or services in a language other than English, it should also consider the national origin of its offer recipients to ensure ECOA compliance.

B. The Electronic Funds Transfer Act

The EFTA covers consumer transactions that involve the electronic transfer of funds.[16] Generally, these involve point-of-sale transfers, automated teller machine transactions, direct deposits or withdrawals of funds, automated clearinghouse systems, telephone bill payment plans with periodic or recurring transfers, remote banking programs, remittance transfers, payroll card transactions, and, soon, prepaid card transactions.[17] Regulation E, now implemented by the CFPB, carries out the EFTA and applies to all financial institutions[18] and any person[19] that offers electronic fund transfer services to residents of any state.[20] In addition to its broad coverage, Regulation E requires that clear and readily understandable written disclosures be provided to consumers during certain stages of the electronic funds transfer process.[21]

Similar to the ECOA, disclosures may be made in a language other than English under the EFTA, provided that the disclosures are made available in English upon a consumer’s request.[22] While there is not an obligation to provide a foreign language disclosure, if provided, the disclosure must contain an accurate translation of the required terms, language, and notices.[23] In addition, if a company chooses to advertise or promote its services in a foreign language, the company must provide the consumer with disclosures in both English and the foreign language principally used by the company to advertise its services.[24]

A significant foreign language issue in the EFTA context arises with remittance transfers (i.e., funds sent from the United States to a foreign country), which are subject to detailed requirements set forth in Regulation E. Regulators generally look at all relevant facts and circumstances to determine whether a foreign language is principally used by the remittance transfer provider to advertise its services.[25]Important factors include: the frequency with which the foreign language is used in advertising, soliciting, or marketing of remittance transfer services at an office; the prominence of the advertising, soliciting, or marketing of remittance transfer services in the foreign language at the office; and the specific foreign language terms used in the advertising soliciting, or marketing of remittance transfer services at the office.[26]

In a different context, the CFPB recently issued a proposed regulation that seeks, among other things, to regulate a broad range of prepaid products under Regulation E.[27] The proposal would create a new disclosure regime for prepaid products including certain short-form and long-form pre-acquisition disclosures. The proposed regulation would require providers that principally advertise in a foreign language to provide consumers with both a short-form and long-form pre-acquisition disclosure in such foreign language,[28] and have a long-form disclosure available in English upon the consumer’s request.[29] The intent behind the CFPB’s foreign language disclosure regulation is to ensure that information is fully, accurately, and effectively disclosed to consumers in a manner that permits consumers to understand the costs, benefits, and risks associated with the prepaid product at issue.[30]

C. Unfair, Deceptive, and Abusive Acts and Practices Under the Dodd-Frank Act

Even if an institution is providing consumer financial products and services in compliance with any of the language requirements that may apply under the ECOA and the EFTA, it should still consider potential issues arising from the Dodd-Frank Act’s prohibition on UDAAPs.[31]

The Dodd-Frank Act defines “unfairness” as something that is likely to cause or actually causes substantial injury to consumers, which is not reasonably avoidable by consumers, and the injury is not outweighed by countervailing benefits to consumers or to competition.[32] “Deception” is generally defined as a representation or omission that is likely to mislead or actually misleads a consumer and is material to the consumer, where the consumer is acting reasonably under the circumstances.[33] The final basis for a UDAAP violation includes the “abusive” standard, which is defined by the Dodd-Frank Act as a representation or omission that:

materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or

takes unreasonable advantage of (a) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service, (b) the inability of the consumer to protect the consumer’s interests in selecting or using a consumer financial product or service, or (c) the reasonable reliance by the consumer on the financial services provider to act in the interests of the consumer.[34]

To date, the CFPB has not proposed rules under its UDAAP rulemaking authority;[35] however, CFPB Director Richard Cordray has indicated that the CFPB will use enforcement actions or civil suits to generally define UDAAP practices.[36] Given this supervision by enforcement approach, providers may be in technical compliance with the alphabet soup of regulations, but still face potential UDAAP liability pursuant to the CFPB’s enforcement authority. This possibility is particularly troublesome given that a UDAAP violation can occur at any stage of the consumer transaction lifecycle—from advertising or direct marketing activities, consumer disclosures, contracts, and billing and other account statements, to servicing or collection activities. While there is no federal case law holding that it is a UDAAP violation to provide disclosures or consumer information only in English, several states require disclosures in certain consumers’ native language. Considering the broad consumer protection mandate of the CFPB, it is possible that the CFPB could take the position that certain customer disclosures involve a UDAAP where a consumer does not understand every facet—or at least important aspects—of a transaction in his or her native language.

II. Other Federal Regulatory Activity

A. CFPB Supervision Examination Procedures

The CFPB Supervision and Examination Manual[37] includes ECOA Baseline Review Modules that direct examiners on how to identify and analyze the risks of ECOA violations, facilitate the identification of certain types of ECOA violations, and inform fair lending prioritization decisions for future CFPB reviews.[38] Of particular note is Module IV, which identifies risks related to mortgage servicing. The module requires examiners to describe an institution’s policies and procedures for servicing loans held by LEP borrowers, and seeks information in response to the following questions:

Does the institution flag files that require non-English language assistance? If so, how is this flagged?

Do calls for customer service have an option for languages other than English? If so, how are those calls processed?

Does the institution have customer service personnel available to provide assistance in languages other than English?

If customer service personnel are available to provide assistance in languages other than English, are they dedicated customer service personnel (as opposed to personnel who have other roles, but are available to translate on an as-needed basis)?

Do customer service personnel who are available to provide assistance in languages other than English receive the same training, and have the same authority, as other customer service personnel?

Are translations of English language documents provided for LEP borrowers?[39]

As federal regulators continue to review how to make the consumer financial services markets fair for all consumers, various initiatives have been pursued to address issues impacting certain LEP communities. One program, a 2014 roundtable co-hosted by the FTC and CFPB, convened consumer advocates, industry representatives, state and federal regulators, and academics to examine how debt collection and credit reporting issues affect LEP Latino consumers.[42] The roundtable provided an overview of the growing Latino community, the LEP Latino experience with debt collection litigation and credit reporting issues, and new strategies for educating and reaching out to LEP Latinos about debt collection.[43] During her opening remarks, CFPB Associate Director of External Affairs, Zixta Martinez, also emphasized the ongoing problems associated with language discrimination and how the inaccessibility of certain financial products and services to Spanish speakers magnifies a need for additional CFPB regulation and enforcement. More specifically, Ms. Martinez noted that new CFPB rules could be used to compliment some of the more progressive requirements that currently protect language minorities under state law.[44]

III. State Law

While state laws do not uniformly address how consumer financial products and services must be offered to consumers, several states, including Arizona, California, Illinois, Oregon, and Texas, mandate certain practices with regard to the offering of financial products and services to LEP populations.

A. Arizona

In Arizona, premium finance companies[45] are required to “make available to agents, brokers and managing general agents disclosures as prescribed by Title I of the Consumer Credit Protection Act[46] . . . in both English and Spanish.”[47] Under the Arizona law, material disclosures[48] are required to assure the “meaningful disclosure of credit terms so that the consumer will be able to compare more readily the various credit terms available to him and avoid the uninformed use of credit, and to protect the consumer against inaccurate and unfair credit billing and credit card practices.”[49] In addition, all premium finance agreements must “disclose in English and Spanish, in close proximity to the signature lines, that the borrower may request the Spanish language disclosure before signing any documents.”[50]

B. California

California has taken the most comprehensive approach among the states in addressing how financial products are offered to foreign language consumers. In 1976, the California Translation Act was passed “to increase consumer information and protections for the state’s sizeable and growing Spanish-speaking population,” as well as other non-English speaking residents.[51] The Act provides, in pertinent part:

Any person engaged in a trade or business who negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally or in writing, in the course of entering into any of the following, shall deliver to the other party to the contract or agreement and prior to the execution thereof, a translation of the contract or agreement in the language in which the contract or agreement was negotiated, that includes a translation of every term and condition in that contract or agreement. . . .”[52] The California translation requirement applies broadly to various types of loan and credit extension contracts, residential leases, subleases, and rental agreements, reverse mortgages, legal service fee statements, and foreclosure consulting contracts.[53] A notice must also be conspicuously displayed at the time and place of negotiation, stating the availability of such translations.[54] Failure to comply with the California law provides an aggrieved individual the right to rescind the contract or agreement.[55]

While the California Translation Act has been in effect for nearly four decades, few cases address the statute directly. One of the first cases to do so, Reyes v. Superior Court, applied section 1632 to default and repossession notices.[56] There, the California Court of Appeals ruled that the borrower in an automobile loan transaction was entitled to a Spanish translation of his loan contract and any related deficiency and repossession notices where the borrower did not speak English and the original automobile loan was negotiated primarily in Spanish.[57] The court further clarified that foreign-language translation is required not only for original contracts, but also any subsequent documents that modify the original contract or substantially change the rights and obligations of the parties.[58]

Federal courts have also upheld translation complaints related to mortgage loans.[59] For example, inReyes v. Premier Home Funding, Inc., the U.S. District Court for the Northern District of California found the California Translation Act applicable where a mortgagor alleged that he obtained a loan by negotiating with a bank entirely in Spanish, but because the loan documents were exclusively in English, he “ultimately received a mortgage with less favorable terms than he had initially understood.”[60]

C. Illinois

The Illinois Consumer Fraud and Deceptive Business Practices Act makes it unlawful for any retailer to fail to secure a signed form if the retailer or one if its employees acts as an interpreter on behalf of the consumer in a retail transaction where the contract is negotiated in a language other than English.[61]The Illinois law, however, does not apply to “transactions made pursuant to a credit card issued to the buyer, whether such card is issued by the seller or by a third party.”[62] Few cases have addressed the Illinois non-English translation requirement.[63]

D. Oregon

Under Oregon law, if a “mortgage banker, a mortgage broker or a mortgage loan originator” advertises “in a language other than English or otherwise solicits business in a language other than English” and either offers to negotiate, does negotiate, or makes a loan to a borrower in a language other than English, he or she must provide English copies of a good faith estimate as required under the Real Estate Settlement Procedures Act,[64] disclosures related to the transaction that are required under the Truth in Lending Act,[65] and a statement notifying the borrower that the loan documents will be in English and advising the borrower to obtain translation assistance.[66]

E. Texas

Texas law includes several translation requirements for specific transactions and disclosures. For example, if the terms of an agreement for a loan contract, retail installment transaction, or home equity loan is negotiated in Spanish, “a copy of a summary of those terms and other pertinent information shall be provided to the debtor in Spanish in a form identical to disclosures required for a closed-end transaction under 12 C.F.R. Section 226.18 [Truth in Lending Act Disclosures].”[67]

Under Article 16 of the Texas Constitution, some disclosures and translations must also be made for home equity loans. Specifically, “[i]f the discussions with the borrower are conducted primarily in a language other than English, the lender shall, before closing, provide an additional copy of the notice translated into the written language in which the discussions were conducted.”[68]

F. Other States with Large Non-English Populations

Certain states with some of the country’s most ethnically diverse populations, including Florida, Massachusetts, and New York, currently provide no language protections for LEP individuals when it comes to contract negotiation and translation.[69] Given the increasing diversity of these and other states’ populations, however, it is reasonable to expect that this may change with new language discrimination laws appearing over the next few years.

IV. ACTION ITEMS

In recent years, the CFPB has reaffirmed its intention to enforce provisions of the ECOA, the EFTA, and the Dodd-Frank Act by investigating, filing complaints, holding hearings, and adjudicating claims through its administrative enforcement process.[70] As the CFPB continues to ramp up its supervision activities and use various enforcement tools to “address bad actors in the market that seek an unfair competitive advantage based on skirting the law and mistreating consumers,”[71] entities risk exposure to federal investigations and actions for a broad spectrum of consumer offerings, including products and services related to mortgages, credit cards, debt reduction or relief, and credit reporting. With respect to most of these areas, limited federal guidance currently exists for supervised financial institutions on whether language translations are required when marketing to, communicating with, or contracting with consumers whose primary language is not English. In addition, scant attention has been paid to issues arising with the use of different languages during different stages of a consumer financial transaction where LEP consumers are involved. While recent settlements may signal a new wave of enforcement actions directed at those who discriminate against consumers on the basis of their race or national origin, the CFPB’s recent attention to the fair treatment of single-language minority individuals could indicate a push towards the implementation of new regulations or enforcement actions dedicated to protecting LEP consumers.[72] This course of action would align well with the CFPB’s mission to protect consumers from abusive and discriminatory practices, and ensure that the ever-growing LEP population receives “timely and understandable information to make responsible decisions about financial transactions.”[73]

Based on the current regulatory environment and the CFPB’s efforts to enforce and promote the protection of LEP individuals in the consumer financial marketplace, entities offering consumer financial products and services should be proactive about monitoring their operations for potential ECOA, EFTA, and UDAAP violations, as well as issues involving other potential areas of vulnerability. In preparation for any future federal regulation or CFPB inquiry regarding language-based discriminatory or deceptive practices, entities should consider taking steps to improve the accessibility of their products and services for non-English speakers, and remediate or prevent any actions that might be deemed discriminatory or deceptive towards LEP individuals. Of particular note are the following action items:

Maintain a strong compliance management and review system that includes a focus on or sensitivity to potential language discrimination issues;

Review current communication and transaction processes to ensure that LEP individuals are given equal access to all consumer financial programs and services;

Self-identify potential ECOA and EFTA violations and remediate those practices as quickly as possible;

Implement a process to review marketing, offering, and transactional documents and materials, as well as other consumer-facing processes such as loan origination and consumer complaint systems, to screen for potential weaknesses and vulnerabilities related to language-based discrimination;

Limit areas where consumer-facing employees are free to exercise “subjective and unguided discretion” when interacting with LEP consumers to minimize the risk of practices with unlawful discriminatory effects;

Conduct training programs for consumer-facing employees to increase awareness of and the appropriate handling of issues involving language-based discrimination, including educating employees on the potential for fair lending issues that could arise from the failure to appropriately handle potential language barriers;

Clearly disclose the terms of any consumer financial product or service in English and, where applicable, the consumer’s primary foreign language, and obtain translation services, as appropriate, to avoid potential issues;

Affirmatively cooperate with federal and state regulatory authorities to address issues of concern involving potential language discrimination issues, and seek out clarity in areas in which there may be some uncertainty; and

Ensure accountability to monitor activities, maintain compliance programs, and address potential language-based discrimination issues throughout the organization, including at the senior management and board of directors level.

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